The following is an excerpt from "Transforming Bank Branches Through Video Banking," a special report available for free download after registration.

For FIs a physical branch presence traditionally means better customer service, however video banking is an emerging trend that blends self-service with a human touch.

Video banking incorporates a remote teller presence via video technology. Depending on the technological capabilities of the equipment, consumers are able to complete most branch transactions remotely with a teller housed in a centralized call-center environment.

“Financial institutions are searching for solutions that will allow them to expand their footprint in the most cost effective manner. They have to drastically alter the way they deliver services in order to compete and survive,” said Karen Connor, vice president of sales at Sandy, Utah-based uGenius Technology, a leading video banking solution provider.

Claire Schooley, an analyst with Boston-based business and technology consulting firm Forrester Research Inc., examined the growth of video banking in the 2008 report “The Banking Industry Is Using Video Banking to Better Meet Customer Needs.” She wrote that FIs find video banking to be an effective tool, with a few caveats.

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“The driving forces are a desire to differentiate themselves from their competition, customer uptake in the use of the Internet, and a higher cross-sell rate with video conferencing than with telephone,” Schooley wrote in the report. “Excellent bank staff training in techniques for working remotely with customers and facility with using technology are critical success factors.”

Bob Meara, senior analyst with Boston-based financial research firm Celent, said banks are adopting video banking as a means to balance the desire for branch growth against the cost.

“FIs are always trying to balance customer service with the cost associated with doing that,” he said. “The costs are large and as transactions decline in branches, it’s tougher to deliver great customer service and cut head count at the same time.”

At Mid-Hudson Valley Federal Credit Union in Kingston, N.Y., management looked at video banking as a cost-effective investment in technology to expand customer service. MHVFCU used uGenius Personal Teller Machines to offer around-the-clock teller services to its members from a centralized call center.

Bob Michaud, senior vice president and chief marketing officer for MHVFCU, said the FI doesn’t expect to see significant cost savings until after the 7-year amortization of the PTM equipment.

“We can have two to three people in the call center staffing 20 to 25 of these PTMs during the overnight hours,” Michaud said. “There comes time when you weigh the absolute lowest cost compared to putting a value on delivering convenience as part of your brand.”

Although a video-banking installation may cost more than a standard ATM transaction, it’s less expensive than a traditional branch transaction.

“Banks will have to look at how to slowly migrate more and more valuable activity out of branches and into the smaller branches that are less expensive to build and maintain,” Meara said.

With the average cost to build a bank branch in the $3 million range, a traditional branching strategy represents a significant investment.

“The macro trend here is there is more use of video and it’s not as strange or scary as it once was,” Meara said. “The technology is a lot better, it offers a better user experience and people are drawn to use self-service increasingly.”

For more information on this topic, visit our bank automation research center.